OTC Markets Group’s second-quarter results showed progress against a relatively subdued market background, underlining the benefits of its mainly subscription-based business model. Investment in the IT platform continues to pay off in the shape of 100% uptime. The achievement of Blue Sky recognition from five states is a promising early indicator of the group’s ability to broaden its appeal to a wider range of corporate clients.
OTC Markets Group (OTCM) reported second-quarter revenues 2% ahead and net income up 5% compared with the same period last year. By business line, OTC Link ATS revenues were down 9%, reflecting pricing changes made last year and reduced volumes, while market data was modestly up and corporate services ahead by nearly 10%, driven by a higher number of corporate clients compared with Q215. The quarterly dividend was maintained at $0.14 (the 31st consecutive quarterly dividend payment).
Signals on the near-term outlook for capital markets activity could be seen as mixed, with uncertainty over the economic and political outlook in the US and Europe potentially acting as a brake on both IPOs and the appetite of companies to sign up to OTCM’s services. However, market levels have been surprisingly buoyant and, looking further ahead, there is a significant opportunity for OTCM to achieve greater market share both in terms of corporate clients and the reach of its market data. US regulatory changes facilitating online/crowdsourcing could create a population of growing companies for whom OTCM’s relatively low cost and less administratively onerous route to public trading would be particularly appealing. In addition, progress towards the eventual target of Blue Sky exemptions in all 50 US states and one district could progressively raise OTCM’s profile and the range of companies that would consider using its services.
Relative to quoted financial information providers OTCM trades at a noticeable P/E discount and also trades on a more modest discount to the average for global exchanges. We have updated our central DCF valuation giving a value of $18.7 per share (vs $19.2). Excluding our estimated special dividend of $0.6 for this year the shares would yield 3.3%, while including it pushes the prospective yield to 6.8%.